Cash deposits during demonetization: profit estimation must credit already declared profits under section 69A

The ITAT Jaipur ruled on additions under section 69A for cash deposits during demonetization and application of section 145(3). The tribunal held that when books of account are rejected and profit estimated at 10% on deposited money, the AO must credit profit already declared by the assessee. The tribunal directed the AO to reduce profit already declared at 5.74% and consider balance 4.26% as trading addition. Regarding section 145(3) application, the tribunal upheld rejection of books based on detailed reasons, finding no infirmity in lower authorities' findings despite assessee's contention about accounting method and stock valuation not being specifically rejected.

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Issues Involved:
1. Condonation of delay in filing the appeal.
2. Application of Section 145(3) without rejecting the method of accounting and stock valuation.
3. Application of Section 69A for cash deposit in the bank during the demonetization period.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee filed an appeal with a delay of 124 days, supported by an affidavit stating the reasons for the delay. The Revenue objected, arguing that the notice was sufficiently served. The Tribunal, after hearing both parties, found that the delay was due to a different email ID being used, which resulted in the delay. The Tribunal condoned the delay, citing the Supreme Court case of Collector, Land Acquisition vs. Mst. Katiji and Others, which held that refusing to condone delay could result in a meritorious matter being dismissed at the threshold.

2. Application of Section 145(3) Without Rejecting Method of Accounting and Stock Valuation:
The assessee argued that the CIT(A) confirmed the application of Section 145(3) without rejecting the method of accounting and stock valuation. The AO had rejected the books of accounts under Section 145(3) due to discrepancies such as:
- Significant cash deposits during the demonetization period.
- Cash sales without proper documentation.
- Inconsistent opening and closing stock figures.

The CIT(A) upheld the AO's decision, noting that the AO had identified specific defects in the books of accounts and had followed the due process. The Tribunal found no infirmity in the AO's and CIT(A)'s findings, stating that the AO had valid grounds to reject the books of accounts under Section 145(3). Therefore, this ground was dismissed.

3. Application of Section 69A for Cash Deposit in Bank During Demonetization Period:
The assessee contended that the cash deposits were out of regular books and should not be treated as unexplained money under Section 69A. The AO had rejected the books of accounts and estimated 10% of the cash deposited during the demonetization period as unexplained money under Section 69A, adding Rs. 3,65,000 to the assessee's income.

The Tribunal noted that since the books of accounts were rejected, the AO should have considered the profit already declared by the assessee. The Tribunal directed the AO to reduce the profit already declared by the assessee (5.74%) from the estimated profit (10%), and consider the balance (4.26%) as trading addition. Thus, this ground was partly allowed.

Conclusion:
- The delay in filing the appeal was condoned.
- The application of Section 145(3) was upheld.
- The addition under Section 69A was partly allowed, with directions to adjust for the already declared profit.

Order pronounced in the open court on 02/09/2024.

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